What the Oil Inventories Spread Suggests for Oil Prices
US oil inventory
In the week ending June 23, 2017, US crude oil inventories rose by 0.1 MMbbls (million barrels) to 509.2 MMbbls, according to EIA data on June 28, 2017. The rise was less than the rise of ~4.1 MMbbls in the week ending June 24, 2016.
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Did the inventories spread contract?
Based on the latest weekly data, US crude oil inventories were 107.2 MMbbls above their five-year average. Usually, the oil inventories spread and oil prices move inversely, as you can see in the above graph.
In the week ending June 23, 2017, the inventories spread expanded by 0.6 MMbbls compared to the previous week. US crude oil active futures rose 5.2% on June 28–July 3, 2017. On June 28, 2017, the EIA announced inventory data for the week ending June 23, 2017. In Part 1 of this series, we discussed the factors that supported oil prices on June 26–July 3, 2017.
On July 6, 2017, the EIA will report crude oil (BNO) (UCO) (OIIL) inventory data for the week ending June 30, 2017. Last year, in the week ending July 1, 2016, oil inventories fell by 2.2 MMbbls. Similar to last year’s fall, analysts’ estimates suggest a fall of 2.4 MMbbls in oil inventories for the week ending June 30, 2017. Also, the API reported a fall of 5.8 MMbbls in crude oil inventories for the week ending June 30, 2017.
The inventories spread could impact the broader equity market such as the S&P 500 Index (SPY) and the Dow Jones Industrial Average (DIA). It’s important because of its effect on crude oil prices drives the profitability of the energy constituents of these equity indexes. Also, inflation expectations are impacted by oil’s movements.